It has been two years since the most recent peak for major stock market indices. In October 2007, the Dow, S&P 500, and the Nasdaq all reached new multi-year highs.

Since then, we experienced a recession and a market collapse that many economists have called the worst since the Great Depression. Below is a chart that shows how the three major indices have performed over the past two years.

It is easy to see that although stocks have rallied strongly since March 2009, the major indices remain well below the highs reached in October 2007. As a result, many investors are still suffering the effects of the losses sustained in the downturn.

One other interesting observation that is easy to see on this chart is the steep decline that occurred in October 2008. A year ago major indices began the month with one of the sharpest drops in market history. In spite of the dramatic recovery seen in recent months, the indexes are now at about the same level as a year ago.

At this point it is difficult to predict where the market will be a year from now. While it is nice to think that the recession might be coming to an end, many economic challenges remain.

Stocks have advanced strongly for almost eight months now. In market history, it is rare to see such a sustained advance even during a powerful bull market without a substantial retracement or a period of sideways consolidation. It is impossible to predict whether such a corrective period will soon occur, but as we have explained in previous weeks, there are many reasons for investors to exercise caution right now.

F.S.

This entry was posted on Wednesday, October 14th, 2009 at 5:37 pm and is filed under Newsletter. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.